In re First Solar, Inc. Derivative Litig.
| Decision Date | 04 March 2012 |
| Docket Number | Civ. Action No. 12-417-GMS-CJB |
| Parties | IN RE FIRST SOLAR, INC. DERIVATIVE LITIGATION. |
| Court | U.S. District Court — District of Delaware |
This matter arises out of two separate complaints, wherein two shareholders ("Plaintiffs") of First Solar, Inc. ("First Solar") alleged that certain current or former directors and officers of First Solar (collectively, "Defendants") breached their fiduciary duties to First Solar and its shareholders. (D.I. 4 at 2) Presently pending before the Court is Defendants' Motion to Dismiss or Transfer for Improper Venue ("Motion"). (D.I. 7) For the reasons that follow, I recommend that Defendant's Motion be GRANTED and that the case be TRANSFERRED to the District of Arizona.
The Plaintiffs in this case are Chuluuntsetseg Tsevegmid and Curtis Brownlee, shareholders of First Solar and citizens of Virginia and Indiana, respectively. (D.I. 1 at ¶ 12; D.I. 10, ex. B (hereinafter, "Brownlee Compl.") at ¶ 5) First Solar, the nominal corporate defendant, manufactures and sells solar power systems. (D.I. 1 at ¶ 2; Brownlee Compl. at ¶ 29; D.I. 8 at 3) First Solar is a Delaware corporation having its principal place of business in Tempe, Arizona. (D.I. 1 at ¶ 13; Brownlee Compl. at ¶ 6; D.I. 8 at 4)
Defendants are eleven current or former officers and directors1 of First Solar. (D.I. 1 at ¶¶ 14-23; Brownlee Compl. at ¶¶ 7-17; D.I. 8 at 1) Five of the Defendants are citizens of Arizona, while the remaining Defendants are citizens of Connecticut, Washington D.C., Florida, Minnesota, Texas, and California. (D.I. 1 at ¶¶ 14-23; Brownlee Compl. at ¶¶ 7-17; D.I. 8 at 6) It is undisputed that none of the Defendants reside in Delaware. (D.I. 1 at ¶¶ 14-23; Brownlee Compl. at ¶¶ 7-17; D.I. 8 at 6; D.I. 11 at 5) Defendants perform or performed their duties primarily at First Solar's headquarters in Arizona. (D.I. 9 at ¶ 6)
On April 3, 2012, Plaintiff Chuluuntsetseg Tsevegmid filed the first derivative suit in this Court against Defendants Michael J. Ahearn, Craig Kennedy, James F. Nolan, William J. Post, J. Thomas Presby, Paul H. Stebbins, Michael Sweeney, Jose H. Villarreal, Robert J. Gillette, and Bruce Sohn. (D.I. 1) On April 10, 2012, Plaintiff Curtis Brownlee filed the second derivative suit in this Court against the same Defendants, but also adding Defendant James Zhu. (Brownlee Compl.) On April 30, 2012, the cases were consolidated. (D.I. 4)
On May 15, 2012, in lieu of filing an answer, Defendants filed the Motion seeking to dismiss the action for improper venue or in the alternative to transfer the action to the District of Arizona. (D.I. 7) On June 5, 2012, the case was referred to me by Chief Judge Gregory M. Sleet to conduct all proceedings related to discovery disputes, alternate dispute resolution, and dispositive and nondispositive motions, up to the pretrial conference. (D.I. 12) The instantMotion was folly briefed on June 18, 2012. (D.I. 8, 11, 13)
The Court originally scheduled oral argument on the Motion in August 2012; at the request of counsel, that proceeding was moved to September 20, 2012. (D.I. 16) At the end of oral argument, the Court ordered the parties to submit supplemental briefing regarding the applicability of a line of cases drawn from the United States Supreme Court's decision in Neirbo Co. v. Bethlehem Shipbuilding Corp., Ltd., 308 U.S. 165 (1939), which were not discussed in the parties' initial briefing. (D.I. 18 (hereinafter, "Tr.") at 63:23-64:11) Supplemental briefing was completed on October 4, 2012. (D.I. 19, 20)
The consolidated complaints assert claims against Defendants for breaches of fiduciary duty to First Solar and for unjust enrichment. (D.I. 1 at ¶¶ 101-112; Brownlee Compl. at ¶¶ 54-70) The essential allegations in both complaints are the same, and are as follows. From June 2008 to June 2009 a manufacturing defect arose in some solar power modules that First Solar had manufactured, which caused the modules to experience premature power loss once installed. (See, e.g., D.I. 1 at ¶ 33) In response, First Solar initiated a voluntary remediation program beyond that called for by the standard limited warranty, pursuant to which First Solar would cover certain costs and remediation efforts. (Id.) It is alleged that from July 2008 through November 2011, Defendants made false and misleading statements to the public by misrepresenting and failing to disclose the actual and full impact of the manufacturing defect. (Id. at ¶¶ 34-73) These allegedly false and misleading statements made in First Solar's public filings, press releases, and conference calls touted First Solar's "positive financial results, significant growth, and presented positive forward guidance," while allegedly failing to disclosethe actual and full impact of the manufacturing defect on the company's earnings and the actual costs the company was incurring to remediate those defects. (Id. at ¶¶ 5-6)
Defendants thus are alleged to have breached their fiduciary duties because they knew and had reason to suspect that First Solar's corporate reporting and disclosure system was not functioning properly and that the above-referenced issued statements were materially false and/or misleading. (Id. at ¶ 5) It is alleged that when the truth was finally revealed regarding these false and/or misleading statements, First Solar's market capitalization fell by approximately $512.8 million. (Id.) In addition to the loss of market capitalization, Defendants' breaches allegedly caused substantial damages to First Solar, including damage to First Solar's reputation, goodwill, and standing in the business community, as well as the resultant loss of business and business opportunities, legal fees, costs and potentially large amounts that may be payable in settlement or satisfaction of class action lawsuits. (Id. at ¶ 6) It is further alleged that certain Defendants utilized their knowledge of First Solar's true health and inflated stock price for their own benefit by selling over $378 million worth of First Solar common stock while in possession of material, adverse non-public information. (Id. at ¶ 7)
A court may dismiss a case under Fed. R. Civ. P. 12(b)(3) if venue is improper. Traynor v. Liu, 495 F. Supp. 2d 444, 448-49 (D. Del. 2007); see also Rait P'ship, L.P. v. Fieldstone Lester Shear & Denberg, LLP, No. 09-28-GMS/MPT, 2009 WL 3297310, at *2 (D. Del. Oct. 14, 2009). When reviewing a motion to dismiss for improper venue, the court must generally accept the allegations in the complaint as true, unless those allegations are contradicted by thedefendants' affidavits. Bockman v. First Am. Mktg. Corp., 459 F. App'x 157, 158 n.1 (3d Cir. 2012) (citations omitted); Kimmel v. Phelan Hallinan & Schmieg, PC, 847 F. Supp. 2d 753, 759-60 (E.D. Pa. 2012); see Rait P'ship, L.P., 2009 WL 3297310, at *2. The moving party bears the burden of proving that venue is improper. Chase Bank USA N.A. v. Hess Kennedy Chartered LLC, 589 F. Supp. 2d 490, 501 (D. Del. 2008); Traynor, 495 F. Supp. 2d at 449.
Venue may be proper in one of two ways. As a general matter, since the Federal Rules of Civil Procedure do not contain any specific venue provisions or requirements, a court must look to the relevant venue statutes in order to determine whether venue is appropriate in a given case. Traynor, 495 F. Supp. 2d at 449; Albright v. W.L. Gore & Assoc., Inc., No. 02-304-GMS, 2002 WL 1765340, at *4 (D. Del. July 31, 2002). However, venue may also be proper if a party has consented to suit in a particular district, thus having waived any right to challenge venue. See, e.g., Neirbo v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 168 (1939); Davis v. Smith, 253 F.2d 286, 288 (3d Cir. 1958); Standard Oil Co. v. Montecatini Edison S.p.A., 342 F. Supp. 125, 132 n.7 (D. Del. 1972). Plaintiffs argue that venue is proper under either of these options; therefore, the Court will examine both, starting first with whether Defendants consented to suit in this District (and thus have waived their right to contest venue).
Although venue in federal courts is determined by statute, the statutes "merely accord[] to the defendant a personal privilege respecting the venue, or place of suit, which he may assert, or may waive, at his election." Neirbo, 308 U.S. at 168; see also Standard Oil Co., 342 F. Supp. at 132 n.7. The privilege "may be lost by failure to assert it seasonably, by formal submission in acause, or by submission through conduct." Neirbo, 308 U.S. at 168. In other words, "unless the defendant has also consented to be [sued] in [the district in question], he has a right to invoke the protection which Congress has afforded him." Olberding v. Illinois Cent. R. Co., 346 U.S. 338, 340 (1953).
The threshold issue in this case is whether Defendants' service as directors of First Solar, in light of the content of the Delaware Nonresident Director Consent Statute, Del. Code Ann. tit. 10, § 3114 (West 2009) ("Section 3114" or "Director Consent Statute"), constitutes a waiver of the federal venue privilege. Section 3114 (a) and (b) notes that a "nonresident . . . who . . . accepts election or appointment" as an officer or director of a Delaware corporation "shall . . . be deemed thereby to have consented to the appointment" of the corporation's registered agent (or if there is none, the Secretary of State) for service of process in civil actions brought in the state. Del. Code Ann. tit. 10, § 3114(a) & (b). The Supreme Court case of Neirbo v. Bethlehem Shipbuilding Corp., 308 U.S. 165 (1939), and its progeny address what type of act regarding the designation of an agent for service of process can amount to a waiver of the federal venue privilege. Although the parties did not squarely address this line of cases in their initial briefing, in their supplemental briefing both sides note the...
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